CompaniesAug 18 2020

Advice gap to widen as 60% of advisers turn away clients

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Advice gap to widen as 60% of advisers turn away clients
New client meetings: A thing of the past?

A survey of 255 advisers from the investment business found 60 per cent of advisers had turned away clients in the past 12 months, while 62 per cent planned to retire by 2030.

According to the investment business, this highlighted an “urgent need” to attract more people into the industry.

Ruth Handcock, CEO of Octopus Investments, said: “The report’s findings are worrying, especially at a time when many people find themselves in a period of financial uncertainty as a result of Covid-19 and need advice. We need more not fewer financial advisers in the UK, but the good news is this is a problem we can solve.

“The evidence suggests that if we raise awareness of the profession and help more people understand what the role actually involves, the talent will follow. Becoming a financial adviser offers a rich and varied career, and an opportunity to help people achieve their life goals. We just need to get that message out there.”

Octopus found two-thirds (67 per cent) of advisers had experienced difficulties finding talent.

This was backed up by another survey from Octopus Investments, which found while 22 per cent of 1000 students asked had considered a career in financial advice, the “vast majority” had not.

Many of the students who had not considered a career in financial advice said they did not think their personality was suited to the job (39 per cent), while a quarter (24 per cent) said they did not want a corporate job with an office base.

But the research found when students were given more information about the role of financial advisers, 45 per cent would consider working in the profession.

Claire Limon, director of learning and acquisition at Openwork, said: “I think that ‘corporate’ perception comes from banks, as that’s typically the only interaction people have with financial services at that age”.

“I don’t think they really understand the industry and the fact that you’re potentially running your own enterprise if you want to, so it’s not corporate at all.”

Areas of opportunity

The report suggested there was an opportunity for advice firms to tackle the advice gap by shifting their focus on young talent, diversity and paraplanning.

This comes as the research found only 19 per cent of firms had a graduate training scheme.

Alan Marks, managing director at Harrison Spence, said: “Almost always, younger clients want their advisers to be a similar age.

“[Although] recruiting a younger adviser to attract younger clients might not always make sense in the short term, over time their wealth is likely to grow and they will come into an inheritance. This is what feeds your business and provides longevity – which ultimately adds value to it”.

One firm following this mantra is Kettering-based advice firm Telford Mann Pensions & Investments, which recently announced it was targeting school leavers and graduates as part of a recruitment drive in the aftermath of the coronavirus lockdown.

A greater focus on diversity can also help attract more talent.

Cary Curtis, CEO at recruitment agency Give A Grad A Go, said: “We know from our own research that 83 per cent of graduates would prefer to work for companies that have a clear diversity and inclusion policy, so that’s definitely something that advice firms should consider."

Jackie Lockie, head of financial planning at the Chartered Institute for Securities & Investment, said: “The profession itself should be reflective of the society that it serves. We’ve got this advice gap already, if we don’t have a diverse population of advisers and paraplanners to serve the public, then the advice gap is only going to get bigger rather than smaller.”

Meanwhile the importance of paraplanners was highlighted by Laura Russell, head of paraplanner development at Succession Wealth.

She said: “They are often the ones with the critical analysis skills and technical knowledge who come up with ideas of how best to meet the client’s objectives. 

“That frees up more of the adviser’s time, which they can then devote to their clients, because they know that their paraplanner can put together all the necessary research and analysis for the advice they want to provide.”

Opposing views

While Octopus Investments found advisers have had to turn away clients, separate research from Fidelity FundsNetwork, out last week, suggested financial advisers were now more likely to take on new clients, compared to before the coronavirus.

A survey of 100 financial advisers by the platform in May found 77 per cent were planning to take on new clients, compared with 67 per cent in January.

This was as more than half (55 per cent) of IFAs predicted an increase in demand for financial advice within the next five years.

Additionally, the platform’s report found three in 10 advisers (31 per cent) were planning to hire new staff in the next five years, compared with 13 per cent in January.

Jackie Boylan, head of FundsNetwork, said: “[The] majority of advisers remain optimistic for the future with most anticipating a rise in the demand for their services over the next three to five years".

Piers Mepsted, managing director at Financial Advice Centre, told FTAdviser he was looking to recruit advisers to "help share and contribute toward the steep rises in FCA levies".

He said: “The objective of bringing on new members of staff is to ultimately increase the profitability of the business, [which] has become more relevant recently with the large increases we have seen in FCA levies and PI”.

But Alistair Cunningham, chartered financial planner at Wingate Financial Planning, noted that unless new employed advisers started producing new business straightaway, recruitment would add to costs.

Mr Cunningham said: "If we recruit new advisers they will add to our costs as they are employed and will neither share nor contribute to the FCA levies or PI costs unless they suddenly start producing new business, which is not usually the case."

While acknowledging the upfront cost of bringing on new advisers, Mr Mepsted added: “The reason for them coming into the business is to grow the client base and our reach over time which ultimately contributes incrementally towards all costs.

“We take this longer term view that the growth we achieve with new advisers outweighs expense incurred for FCA levies and PI.”

chloe.cheung@ft.com